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Flashcards in UK Corporate Governance Code Deck (73)
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1

A.1.

Every company should be headed by an effective board which is collectively responsible for the long-term success of the company.

2

A.1.1.

The board should meet sufficiently regularly to discharge its duties effectively. There should be a formal schedule of matters specifically reserved for its decision. The annual report should include a statement of how the board operates, including a high level statement of which types of decisions are to be taken by the board and which are to be delegated to management.

3

A.1.2.

The annual report should identify the chairman, the deputy chairman (where there is one), the chief executive, the senior independent director and the chairmen and members of the board committees.
It should also set out the number of meetings of
the board and those committees and individual attendance by directors.

4

A.1.3.

The company should arrange appropriate insurance cover in respect of legal action against its directors.

5

A.2.

There should be a clear division of responsibilities at the head of the company between the running of the board and the executive responsibility for the running of the company’s business. No one individual should have
unfettered powers of decision.

6

A.2.1.

The roles of chairman and chief executive should not be exercised by the same individual. The division of responsibilities between the chairman and chief executive should be clearly established, set out in writing and agreed by the board.

7

A.3.

The chairman is responsible for leadership of the board and ensuring its effectiveness on all aspects of its role.

8

A.3.1

The chairman should on appointment meet the independence criteria set out in B.1.1 below. A chief executive should not go on to be chairman of the same company. If exceptionally a board decides that a chief executive should become chairman, the board should consult major shareholders in advance and should set out its reasons to shareholders at the time of the appointment and in the next annual report.

9

A.4.

As part of their role as members of a unitary board, non-executive directors should constructively challenge and help develop proposals on strategy.

10

A.4.1.

The board should appoint one of the independent non-executive directors to be the senior independent director to provide a sounding board for the chairman and to serve as an intermediary for the other directors when necessary. The senior independent director should be available to shareholders if they have concerns which contact through the normal channels of chairman, chief executive or other executive
directors has failed to resolve or for which such contact is inappropriate.

11

A.4.2.

The chairman should hold meetings with the non-executive directors without the executives present. Led by the senior independent director, the non-executive
directors should meet without the chairman present at least annually to appraise the chairman’s performance and on such other occasions as are deemed appropriate.

12

A.4.3.

Where directors have concerns which cannot be resolved about the running of the company or a proposed action, they should ensure that their concerns are recorded in the board minutes. On resignation, a non-executive director should provide a written statement to the chairman, for circulation to the board, if they have any such concerns.

13

B.1.

The board and its committees should have the appropriate balance of skills, experience, independence and knowledge of the company to enable them to
discharge their respective duties and responsibilities effectively.

14

B.1.1.

The board should identify in the annual report each non-executive director it considers to be independent. The board should determine whether the director is
independent in character and judgement and whether there are relationships or circumstances which are likely to affect, or could appear to affect, the director’s
judgement. The board should state its reasons if it determines that a director is independent notwithstanding the existence of relationships or circumstances which may appear relevant to its determination, including if the director:
 has been an employee of the company or group within the last five years;
 has, or has had within the last three years, a material business relationship with
the company either directly, or as a partner, shareholder, director or senior
employee of a body that has such a relationship with the company;
 has received or receives additional remuneration from the company apart from a director’s fee, participates in the company’s share option or a performance related
pay scheme, or is a member of the company’s pension scheme;
 has close family ties with any of the company’s advisers, directors or senior employees;
holds cross-directorships or has significant links with other directors through involvement in other companies or bodies;
 represents a significant shareholder; or
 has served on the board for more than nine years from the date of their first election.

15

B.1.2.

Except for smaller companies, at least half the board, excluding the chairman, should comprise non-executive directors determined by the board to be independent.
A smaller company should have at least two Independent non-executive directors.

16

B.2.

There should be a formal, rigorous and transparent procedure for the appointment of new directors to the board.

17

B.2.1.

There should be a nomination committee which should lead the process for board appointments and make recommendations to the board. A majority of members of the nomination committee should be independent non-executive directors. The chairman or an independent non-executive director should chair the committee, but the chairman should not chair the nomination committee when it is dealing with the
appointment of a successor to the chairmanship. The nomination committee should make available its terms of reference, explaining its role and the authority delegated
to it by the board.

18

B.2.2.

The nomination committee should evaluate the balance of skills, experience, independence and knowledge on the board and, in the light of this evaluation, prepare a description of the role and capabilities required for a particular appointment.

19

B.2.3.

Non-executive directors should be appointed for specified terms subject to re-election and to statutory provisions relating to the removal of a director. Any term beyond six years for a non-executive director should be subject to particularly rigorous review, and should take into account the need for progressive refreshing of the board.

20

B.2.4.

A separate section of the annual report should describe the work of the nomination committee, including the process it has used in relation to board appointments. This section should include a description of the board’s policy on diversity, including gender, any measurable objectives that it has set for implementing the policy, and
progress on achieving the objectives. An explanation should be given if neither an external search consultancy nor open advertising has been used in the appointment of a chairman or a non-executive director. Where an external search consultancy has been used, it should be identified in the annual report and a statement made as to whether it has any other connection with the company.

21

B.3.

All directors should be able to allocate sufficient time to the company to discharge their responsibilities effectively.

22

B.3.1.

For the appointment of a chairman, the nomination committee should prepare a job specification, including an assessment of the time commitment expected, recognising the need for availability in the event of crises. A chairman’s other significant commitments should be disclosed to the board before appointment and included in the annual report. Changes to such commitments should be reported to the board as they arise, and their impact explained in the next annual report.

23

B.3.2.

The terms and conditions of appointment of non-executive directors should be made available for inspection. The letter of appointment should set out the expected time commitment. Non-executive directors should undertake that they will have sufficient
time to meet what is expected of them. Their other significant commitments should be disclosed to the board before appointment, with a broad indication of the time involved and the board should be informed of subsequent changes.

24

B.3.3.

The board should not agree to a full time executive director taking on more than one non-executive directorship in a FTSE 100 company nor the chairmanship of such a company.

25

B.4.

All directors should receive induction on joining the board and should regularly update and refresh their skills and knowledge.

26

B.4.1.

The chairman should ensure that new directors receive a full, formal and tailored induction on joining the board. As part of this, directors should avail themselves of opportunities to meet major shareholders.

27

B.4.2.

The chairman should regularly review and agree with each director their training and development needs.

28

B.5.

The board should be supplied in a timely manner with information in a form and of a quality appropriate to enable it to discharge its duties.

29

B.5.1.

The board should ensure that directors, especially non-executive directors, have access to independent professional advice at the company’s expense where they judge it necessary to discharge their responsibilities as directors. Committees should be provided with sufficient resources to undertake their duties.

30

B.5.2.

All directors should have access to the advice and services of the company secretary, who is responsible to the board for ensuring that board procedures are
complied with. Both the appointment and removal of the company secretary should be a matter for the board as a whole.